Sale-Leaseback for Manufacturing Equipment in Canada

A sale-leaseback turns an existing asset into a financing transaction

The manufacturer already owns and uses the machine. Instead of buying something new, it sells the equipment to a financing company and immediately leases it back.

The equipment normally stays where it is. What changes is the ownership and financing structure.

Why a manufacturer might consider it

A sale-leaseback may be considered when a business has meaningful value tied up in equipment but needs capital for another purpose.

Possible uses can include expansion, inventory, working capital, a new project or restructuring other obligations. The lender will still want to understand the use of proceeds.

The amount is based on current value, not historical cost

If a machine was purchased for $800,000 several years ago, that number does not determine today’s sale-leaseback proceeds.

The financing provider will focus on current market value and its own advance criteria.

Liens and existing debt come first

If another lender has security over the equipment, that obligation usually needs to be addressed before the new financing company can obtain clean ownership or priority.

That can reduce the net proceeds available to the business.

Why an appraisal may be required

There is no new arm's-length sale price from an outside buyer. The manufacturer is effectively selling its own asset into the financing structure.

That makes current value especially important. An appraisal or other independent value support may be required.

The new payment has to make sense

A sale-leaseback creates liquidity, but it also creates a lease payment.

The lender needs to understand whether the business can support that payment and whether the capital being released will improve the company’s position.

Accounting and tax treatment should be reviewed separately

A sale of business equipment can have accounting and tax consequences. Those effects depend on the asset, tax basis, structure and circumstances.

Raymond Leigh can help arrange financing, but the business should review accounting and tax treatment with its professional advisors before completing the transaction.

What information should you prepare?

• Equipment list
• Make, model, year and serial numbers
• Photos
• Ownership evidence
• Existing loan or lease balances
• Current lender information
• Financial statements
• Purpose for the proceeds

Frequently asked questions

Does the equipment have to be paid off?

Not always. Existing debt may be paid out from the transaction if the value and structure support it.

Do I keep using the machine?

Yes, subject to the new lease agreement.

Can several machines be included?

Potentially. A lender may evaluate an equipment pool rather than one asset.

Is sale-leaseback the same as equipment refinance?

No. They can serve similar capital goals, but ownership and legal structure can differ.

Use the structure for a clear business reason

A sale-leaseback is most useful when the business has productive equipment and a clear reason to release capital from it.

If you want to explore the structure, send Raymond Leigh an equipment list and current debt information.

Sale-leaseback works best with productive equipment

The strongest assets are usually equipment the company actively needs and intends to keep using. A lender is less interested in building a lease around idle machinery that the business would be better off selling outright.

What makes an asset easier to evaluate?

Recognized brands, clear serial numbers, service records, a visible secondary market and equipment that can be removed and resold all make valuation more straightforward.

Highly integrated or site-specific systems can still have value, but appraisal and removal questions become more important.

Net proceeds can be much lower than gross value

Existing equipment loans, lien payouts, transaction costs and lender advance limits can all reduce the cash delivered to the business.

Ask for the expected net proceeds, not only the headline facility amount.

Why the business purpose matters

A one-time liquidity event should support a sensible plan. If the company needs cash because of a temporary expansion requirement, the structure may be useful. If the company has a chronic operating deficit, releasing equipment equity does not solve the underlying problem.

Review end-of-term rights carefully

The lease agreement determines what happens at the end. Purchase options, renewals, returns and other obligations vary by structure.

Do not assume the company automatically owns the machine again after the final scheduled payment unless the contract says so.

How insurance changes after a sale-leaseback

Because the financing company owns the equipment during the lease, the lease agreement may require specific insurance coverage and loss-payee wording.

Confirm insurance requirements before closing so the transaction is not delayed by a certificate that needs to be rewritten at the last minute.

Can recently purchased equipment be used?

Some financing providers treat recently purchased equipment differently from machinery that has been owned for years. The structure may look more like a reimbursement or recent-purchase sale-leaseback.

Keep original purchase invoices and proof of payment because they may be important to the lender’s review.